Thursday 21 September 2017

Euro surges as Greece agrees to third bailout deal worth €85bn

Greek Economy Minister George Stathakis, left, and Finance Minister Euclid Tsakalotos following an overnight meeting with representatives of the IMF, the European Commission, the ECB and the Eurozone’s rescue fund in Athens
Greek Economy Minister George Stathakis, left, and Finance Minister Euclid Tsakalotos following an overnight meeting with representatives of the IMF, the European Commission, the ECB and the Eurozone’s rescue fund in Athens
Colm Kelpie

Colm Kelpie

Financial markets in Greece surged, the country's borrowing costs fell and the euro rose yesterday after Athens clinched a third bailout deal "in principle" with its creditors worth around €85bn.

The single currency hit an 11-day high against the dollar in the wake of the three-year deal, after it dropped against the US currency as China's move to devalue the yuan spurred investors to seek a safe haven in the greenback. But the Greek deal restored the euro's appeal.

While news of the agreement drove the Athens stock market up by more than 2pc, it failed to lift other European markets, which closed down in the wake of China's devaluation decision.

Negotiators emerged from a marathon session in Athens early yesterday morning to announce agreement was imminent, bar some remaining issues. A deal would free much needed cash for the debt stricken country, which must make a payment to the European Central Bank next week.

The deal includes promises by Athens to run a primary budget surplus from next year, as well as carrying out ambitious pension reform, privatising the electricity transmission network and overhauling trading and labour laws.

The deal is being put to the Greek parliament for approval by Thursday, and will be blessed by Eurozone finance ministers, possibly at a speculated meeting on Friday.

The European Commission said a deal had been reached "in principle" and that now a political assessment will have to be made involving EU leaders and finance ministers.

Finnish Finance Minister Alexander Stubb quickly poured cold water on optimism that a final deal was in the offing, saying more work remains to be done.

"We must take one step at a time, agreement is a big word," he said.

"There remains work to be done with details."

Germany, seen as the staunchest advocate of fiscal rigour in the Eurozone, said the deal must be convincing. The German parliament - the Bundestag - must approve any deal.

An agreement is likely to end months of discussion about Greece's future in the single currency, but in return, it imposes even more debt upon the struggling country which already has a debt-to-GDP ratio of around 170pc.

It also may prove politically difficult for Greek prime minister Alexis Tsipras, as negotiating a third bailout deal backtracks on one of his key pre-election pledges to end painful austerity.

Facing a revolt from the far-left of his Syriza party, Mr Tsipras is expected to once again rely on opposition support to push the package through parliament.

Athens must agree to a number of so-called prior actions before aid is disbursed, including scrapping tax breaks for farmers and new laws on non-performing loans held by banks.

A number of measures have already been taken by the Greek government in recent weeks, such as simplifying VAT rates, cutting back on pensions and making the national statistics agency independent.

Athens also must agree to certain targets, including producing a primary budget surplus from next year, from 0.5pc in 2016 to 3.5pc in 2018.

Some technical details on measures - such as a law governing individual bankruptcies - that Greece must pass before getting aid were still being discussed between technical experts from both sides yesterday afternoon.

What isn't clear yet is when Athens will be able to access the cash, or what the size of the first disbursement will be.

New figures highlight the difficulties facing the Greek economy. It is expected to slump by between 2.1pc and 2.3pc this year, then contract by 0.5pc in 2016 before returning to growth in 2017 with a forecast expansion of 2.3pc.

The Athens Stock Exchange closed up 2.1pc yesterday, while the yield on Greek 10-year debt fell to 9.9pc.

Bailout reforms required by Greece

Some of the "prior actions", or measures required before bailout aid is disbursed, are expected to include:

* New laws on non-performing loans held by banks.

* Deregulation of the natural gas market.

* Setting up an independent sovereign wealth fund in Greece intended to raise €50bn, three-quarters going to recapitalise banks and decrease debt.

* Scrapping tax breaks for farmers who now receive subsidised fuel.

* Tighter regulation of a repayment system for individuals owing back taxes to the state.

Measures passed include:

* Simplifying VAT rates and applying the tax more widely.

* Cutting back on pensions and making the national statistics agency independent.

* Measures to overhaul the civil justice system.

Measures to come:

* Ambitious pension reform.

* Reforms covering Sunday trading, pharmacy ownership, milk sales and bakeries.

* Privatisation of electricity transmission network.

* Review of rules on collective bargaining, industrial action and collective dismissals. (Reuters)

Irish Independent

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